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CEO Pay from Start to Finish

High CEO pay at U.S. companies has long been justified by its potential to incentivize top talent. When we measured pay and performance against CEO tenure, however, we found little evidence that high CEO pay achieved this lofty goal of CEO incentivization. By aligning pay data with tenure data, we developed an approach that considered pay-performance alignment along the axis of CEO tenure. Our study included 235 CEOs of U.S. companies with complete tenures between 2006 and 2020. This approach allowed us to consider the entirety of a board’s pay decisions about a CEO and better consider how the characteristics of individual CEOs affect pay-performance alignment.

 

Average Annual Pay, Grouped by Average Annual Total Shareholder Return

 

This chart shows the average of average annual awarded and average annual realized pay across all CEOs in the sample. CEOs are grouped into quintiles based on average annual total shareholder return (TSR) over their tenure. Average annual TSR ranges: Worst performance group (-34.8% to 2.5%); Below Average performance group (2.6% to 10.6%); Average performance group (10.7% to 21.8%); Above Average performance group (21.8% to 39.2%); and Best performance group (39.5% to 128.3%). Data as of March 19, 2021, for CEO tenures from 2006-2020. Source: Refinitiv, MSCI ESG Research LLC

 


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